Is it the London air or revenge for the 2023 Ashes tournament? This week’s collapse of REA Group’s [ASX:REA] GBP 6.2bn (USD 8.2bn) takeover proposal for Rightmove [LON:RMV], coming so soon after BHP [ASX:BHP] failed in its GBP 38.6bn equity-value pursuit of Anglo American [LON:AAL] in May, has left another major Australian bidder bruised after trying to buy a London-listed company.

REA Group, a digital advertising company specializing in real estate services, ended its pursuit of the UK-focused digital real estate sales platform after tabling four separate cash and stock takeover offers which were rejected by the target’s board on the grounds that “REA’s proposals were unattractive and materially undervalued Rightmove, and as such could not be recommended to shareholders.”

For its part, natural resource group BHP on 29 May confirmed it would not be making a firm offer for Anglo American after the mining group rejected a third proposal from BHP which it described as having a “highly complex and unattractive structure.”

Both REA and BHP’s proposals would have been the largest acquisition of an company listed on the London Stock Exchange (LSE) by a company listed on the Australian Securities Exchange (ASX) by some distance, according to Mergermarket data.

The largest acquisitions of ASX listed companies into the UK over the past ten years include a Macquarie-led consortium buying the  UK Green Investment Bank in 2017 for GBP 2.3bn; and law firm Slater & Gordon, which paid paid USD 1.225bn for the professional services division of troubled UK firm Quindell (listed on London’s alternative exchange).

REA Group and BHP are not the first ASX bidders to deal with a sticky wicket in London. Macquarie itself had to retreat from its GBP 636m takeover bid for waste management group Renewi in October 2023. Meanwhile, Ramsay Health Care’s GBP 2.11bn deal to buy private hospitals operator Spire Healthcare fell short at the scheme meeting in 2021.

Out!

Despite the difficulties, Mergermarket data shows significant inbound M&A from Australia to the UK over the years. The high watermark of the last decade came in 2017, with total volumes of USD 5.1bn. The last two years have been the next highest, with USD 2.9bn in 2022 and USD 2.6bn in 2023.

Volumes have slumped in the first three quarters of the year to just USD 402m. REA and BHP’s deal announcements were removed from the dataset when the deals failed.

Post-mortem on failures

The primary reasons for the collapse of REA and BHP’s proposals differ. REA, 61% controlled by Rupert Murdoch’s News Corp, and Rightmove could not agree upon value terms.

Meanwhile, the status of Anglo’s Johannesburg-listed subsidiaries Anglo American Platinum [JSE:AMS] and Kumba Iron Ore [JSE:KIO] proved too complex for BHP to unpick. In South Africa, the proposal was also politically controversial during elections in the country.

The failed deals highlight significant differences between the Australian and UK merger regimes in three key areas. First of all, Australia has no version of the UK ‘s Put Up or Shut Up (PUSU) deadline, which gives a bidder 28 days to either make a formal offer or announce that they will not be making an offer, in which case they are restricted from making another offer for the company for a certain period (usually six months).

Secondly, the UK Takeover Panel and the Australian Takeovers Panel differ in several key aspects regarding their roles, enforcement, and processes due to the regulatory and legal frameworks in their respective jurisdictions.

Unlike the UK, the Australian panel’s role is primarily to resolve disputes about takeover bids, particularly when issues arise related to the conduct of the parties involved. The UK Takeover Panel’s oversight is mandatory for public company takeovers, and all parties involved in such deals must comply with the rules of the Takeover Code.

Thirdly, you typically need more formal funding certainty in the UK compared to Australia. In the UK, funding certainty for a deal is more rigorously enforced due to the requirements of the UK Takeover Code, which demands fully committed financing and formal confirmation from financial advisers. In Australia, the requirements are more flexible, focusing more on transparency and providing shareholders with enough information to assess the viability of a bidder’s funding plan.

One can only speculate if there would have been a different outcome in Australia without the hurdles in navigating the UK’s takeover code.

Despite the risks, Mergermarket intelligence shows that there is still appetite for UK targets in Australia. Companies looking to buy include IntelligenceBank of Melbourne, Icon Group of Brisbane and Cann Group [ASX:CAN] of Victoria.

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